Ethena Proposes SOL as New Backing Asset for USDe

• Ethena proposes SOL, BNSOL, and bbSOL as new backing assets for USDe.
• The gradual allocation aims to align with market demand and improve protocol revenue.
• SOL’s $2 billion open interest presents strategic growth opportunities for Ethena.

The Ethena community has proposed incorporating SOL as a backing asset for USDe. This move aims to replicate the existing hedging mechanism currently used by Ethena for its BTC and ETH perpetual futures. Additionally, the proposal includes Binance Liquid Staked SOL (BNSOL) and Bybit Liquid Staked SOL (bbSOL) as potential backing assets.

The recommendation outlines a gradual allocation of USDe’s backing to SOL. This approach will involve consultations with the Risk Committee, particularly due to the shorter trading history and lower liquidity associated with SOL perpetual futures. However, the proposal highlights SOL’s substantial open interest, approximately $2 billion, across multiple trading venues where Ethena executes its hedging transactions. 

Moreover, SOL has demonstrated more favorable funding rates in 2024 compared to BTC and ETH, presenting a strategic opportunity for Ethena to enhance alignment with one of the largest ecosystems in crypto.

Ethena previously announced the launch of USDe on the Solana blockchain in August, utilizing LayerZero’s OFT standard. As part of this initiative, the potential integration of SOL as a backing asset was introduced, pending Risk Committee approval. 

Ethena aims to unlock an additional $2 to $3 billion in open interest by incorporating SOL. This expansion would allow USDe to scale from its current supply of approximately $2.5 billion and meet any future increase in market demand.

The proposed adjustments aim to increase protocol revenue through SOL funding rates and enhance Ethena’s competitive positioning in the rapidly evolving crypto market.

By adopting SOL and its liquid-staked versions as backing assets, Ethena can better navigate the challenges of fluctuating market conditions while optimizing its operational framework.

As the proposal progresses, close collaboration with the Risk Committee will be essential to ensure that the integration of SOL aligns with the overall risk management strategy.

This careful approach will mitigate potential risks associated with the shorter history of SOL’s trading dynamics and provide a more stable framework for USDe’s backing assets.